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TMI Blog1982 (8) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... le sums of money from the Upper India Sugar Mills Ltd. (hereinafter referred to as " Upper India ") and its managing agents. Such borrowings as an March 31, 1948, were to the tune of Rs. 5,21,250 and rose to Rs. 9,93,340 on March 31, 1965. The borrowings were shown in the books of account relating to the electricity undertaking. It may be mentioned here that as one of the activities carried on by the assessee was that of an electrical undertaking for which it had to maintain separate accounts under the Electricity Act, the assessee was maintaining separate sets of accounts for its two sets of activities and that the interest paid on the borrowings was being allowed as a deduction in the computation of the income from this activity. The assessee was making profits in its metal business for the assessment years 1948-49, 1949-50 and 1951-52. In all other years, however, it suffered losses and these losses were particularly substantial in the assessment years 1950-51, 1952-53 and 1953-54. The result was that during the financial years 1959-60 to 1963-64, the activities in the metal business came to standstill. But again in the subsequent two financial years, namely, 1964-65 and 1965-66 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion the company was only having the metal business whereas the interest expenses pertained to the electricity business. The assessee's contention that the loans that had been taken from the Upper India, though entered in the electricity business accounts were not actually utilised for that business, was not found acceptable. He found that in the metal business the interest on borrowed capital claimed in the earlier years was only to the tune of Rs. 8,000. He, therefore, took the view that the assessee could get a deduction for interest only to the extent of Rs. 8,000 in each of the years under consideration and he disallowed the claim to the extent of Rs. 16,931, Rs. 13,115 and Rs. 13,325, respectively, in the three assessment years presently under consideration. The assessee appealed to the AAC. The assessee's contention was that it was carrying on only one business and that the loans were shown in the accounts of the electricity business with a view to inflate the expenses therein so that the appellant could charge higher rates for the electricity from the consumers, as the rate of charge depended on the total expenditure incurred. It was also contended that, after the electr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re carried on in the same premises with the help of the same organisation and that there was a common source of finance, common management and considerable inter-linking between the transactions in the two sets of activities. An attempt was also made to reiterate the contention that factually the borrowings were made only for the metal business and that the transfer of liabilities to the electricity business was under a wrong impression, that by doing so the assessee will be able to charge higher electricity rates from the consumers. An attempt was also made to contend that the assessee was permitted by its memorandum to carry on a business by investing and dealing with the monies of the company not immediately required in such a manner as may from: time to time be determined The Tribunal considered the contentions raised by the assessee which were strongly refuted by the department and ultimately came to the conclusion that the assessee's claim for deduction of interest paid on the loans taken from Upper India should be allowed though not on the grounds on which they had been claimed by the assessee. The Tribunal was unable to accept the assessee's contention that the metal bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quest a statement of case has been drawn up and the following question has been referred to this court for its opinion: "Whether, on the facts and in the circumstances of the case, the net interest paid by the assessee amounting to Rs. 10,953 in the first year, Rs. 5,347 in the second year and Rs. 5,825 in the third year was allowable as a deduction in determining its total income for the assessment years 1967-68, 1968-69 and 1969-70, respectively?" Learned counsel for the department contended that the Tribunal's decision was inconsistent with the findings of fact arrived at by it. He drew our attention to three principal findings given by the Tribunal which remained uncontroverted by the assessee: (i) that the electricity business and the metal business did not constitute one business but, were really two separate and independent businesses for which separate accounts were also maintained by the assessee; (ii) that the funds borrowed from Upper India and its managing agents were utilised in the electricity business and had not been merely accounted for in that set of books in order to get some temporary, advantage as alleged by the assessee; and (iii) that the electricity bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not only equally plausible but also correct. It is no doubt well established that where a business has ceased to exist, a deduction cannot be permitted in respect of amounts pertaining to that business. The cases cited by Sri Wadera were on this point. But while it is true that the amounts appear to have been borrowed for the purposes of the electricity business and accounted for in the books of that business, what we have to consider is the situation that prevailed after the electricity business was taken over by the Government. It is common ground that the assessee transferred the liability on account of these borrowings to the books of account relating to the metal business. It has been argued that much importance cannot be attached to this circumstance, because, after the electricity business was taken over, the assessee had only one business and the assessee had no option but to account for the liabilities in the metal business. It seems to us, however, that this might be an understatement of the real position. We have mentioned earlier that so far as the metal business was concerned it had been continuously sustaining losses till 1959. In fact, annex. F to the statement of ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee for the purposes of the electricity business and were also invested, inter alia, in the assets of that business. These assets came to be substituted, when the business was taken over, by the compensation payable and paid to the assessee in respect thereof. It may be that the compensation amount was not immediately utilised for any profitable purpose and that it did not yield any interest income or other income to the assessee during the previous year. But there appears to be nothing unnatural or farfetched in saying that the monies constituted, or represented a source of income. The borrowed monies had been invested in the assets of the business which have got substituted by the compensation monies. If the compensation received had been invested in shares, securities or other income yielding assets, learned counsel concedes, the interest would be deductible even though such shares or other assets may not yield any income during the year of account. For example, if such compensation money had been deposited in a bank account, the interest on borrowed capital could have been allowed even though no interest on the bank account may have fallen due during the previous year. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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